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Indiana University Bloomington

Department of Finance

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Research and Publications

Journal Articles

Comparative Cheap Talk

2007, Journal of Economic Theory

Archishman Chakraborty, Rick Harbaugh

Abstract

When are comparative statements credible? We show that simple complementarity conditions ensure that an expert with private information about multiple issues can credibly rank the issues for a decision maker. By restricting the expert's ability to exaggerate, multidimensional cheap talk of this form permits communication when it would not be credible in a single dimension. The communication gains can be substantial with even a couple of dimensions, and the complete ranking is asymptotically equivalent to full revelation as the number of issues becomes large. Nevertheless, partial rankings are sometimes more credible and/or more profitable for the expert than the complete ranking. Comparative cheap talk is robust to asymmetries that are not too large. Consequently, for sufficiently many independent issues, there are always some issues sufficiently symmetric to permit comparative cheap talk.

Citation

Chakraborty, Archishman and Rick Harbaugh (2007), "Comparative Cheap Talk," Journal of Economic Theory, Vol. 132, pp. 70-94.

Keywords

Multidimensional cheap talk; Complementarities